[The responsibility of a trustee] may no doubt be extended in equity to others who are not properly trustees, if they are found ... actually participating in any fraudulent conduct of the trustee to the injury of the cestui que trust. But ... strangers are not to be made constructive trustees merely because they act as the agents of trustees in transactions within their legal powers, transactions, perhaps of which a court of equity may disapprove, unless those agents receive and become chargeable with some part of the trust property, or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees.
Henry Barnes appointed William Crush, John Lugar and John Addy to be testators and executors of his will. His money would be invested and then used as a £100 annuity for his widow, Ann, and his three daughters and son. John Addy, the sole remaining trustee, appointed another trustee, with an indemnity. Addy’s solicitors, including Mr William Duffield, had advised against appointing a sole trustee, but drew up the deeds of appointment and indemnity, introduced him to a stockbroker, and the broker transferred the trustee money. This trustee misapplied the trust property and became bankrupt. The children sued Addy and the solicitors.
Lord SelborneLC held that neither of the solicitors had any knowledge of or reason to suspect dishonesty in the transaction.
We cannot consistently with the evidence, or with justice, or reason, disbelieve Mr. Duffield, when he says he never knew nor suspected any dishonest purpose, or believed that any actual fraud would result from what was done; and if that be a true interpretation of the facts, I certainly, for one, am unable to hold him responsible. With respect to the receipt of the money, he received nothing except two sums, one which belonged to the Barlow family, and on which nothing turns, and the other a part ... of which a third came from the Barnes' share, representing £65; and it is said he is to be charged with that (though he did not retain or use for his own benefit a single shilling of that money) because the authority of the trustees to apply that money in the payment of certain costs of a previous suit, which had been compromised, was not obtained from this Court ...
In any event, Barnes had not established a breach of trust by Addy:
The trustee, Addy, authorized the sale for [the] purpose [of compromising a suit brought against him as trustee] and that application of the money, and it was so applied; and I am most clearly of opinion, first of all, that there is nothing before us to shew that such an application was improper on the part of Mr. Addy, the trustee; but, secondly, that if it had been, the solicitor could not possibly have been held on that account responsible.
Barnes v Addy was the starting point for the academic debate as to the proper grounds of accessory liability and claims for knowing receipt of trust property. Lord Nicholls revised the test for assistance liability in Royal Brunei Airlines v Tan (1995), whereby it is no longer necessary for the trustee to have acted dishonestly and instead the key element is that the third party acted dishonestly. This change was deemed necessary on the facts of Royal Brunei as the defendant was a sole director of a company who had caused the dishonest misapplication of trust property, but it had been held that the director's mental state would not be imputed to the company which had held the proceeds under trust. Writing extra-judicially, Lord Nicholls has also argued that the receipt limb of liability for third parties is based on unjust enrichment,[4] a proposition which was decisively[5] rejected by the High Court of Australia in Farah Constructions Pty Ltd v Say-Dee Pty Ltd.[3]
1 2 The year is sometimes given as 1873–74 as both years are covered in this volume of the Chancery Appeal Cases, but this citation is used in later volumes of the Law Reports: Royal Brunei Airlines v Tan [1995] 2 AC 378, 382.
↑ Lord Nicholls (1998). "Knowing Receipt: The Need for a New Landmark". In Cornish; etal. (eds.). Restitution: Past, Present and Future: Essays in Honour of Gareth Jones. p.231.
Roundell Palmer, 1st Earl of Selborne, was an English lawyer and politician. He served twice as Lord High Chancellor of Great Britain.
Donald James Nicholls, Baron Nicholls of Birkenhead, was a British barrister who became a Law Lord.
English trust law concerns the protection of assets, usually when they are held by one party for another's benefit. Trusts were a creation of the English law of property and obligations, and share a subsequent history with countries across the Commonwealth and the United States. Trusts developed when claimants in property disputes were dissatisfied with the common law courts and petitioned the King for a just and equitable result. On the King's behalf, the Lord Chancellor developed a parallel justice system in the Court of Chancery, commonly referred as equity. Historically, trusts have mostly been used where people have left money in a will, or created family settlements, charities, or some types of business venture. After the Judicature Act 1873, England's courts of equity and common law were merged, and equitable principles took precedence. Today, trusts play an important role in financial investment, especially in unit trusts and in pension trusts. Although people are generally free to set the terms of trusts in any way they like, there is a growing body of legislation to protect beneficiaries or regulate the trust relationship, including the Trustee Act 1925, Trustee Investments Act 1961, Recognition of Trusts Act 1987, Financial Services and Markets Act 2000, Trustee Act 2000, Pensions Act 1995, Pensions Act 2004 and Charities Act 2011.
Keech v Sandford[1726] EWHC J76 is a foundational case, deriving from English trusts law, on the fiduciary duty of loyalty. It concerns the law of trusts and has affected much of the thinking on directors' duties in company law. It holds that a trustee owes a strict duty of loyalty so that there can never be a possibility of any conflict of interest.
Dishonest assistance, or knowing assistance, is a type of third party liability under English trust law. It is usually seen as one of two liabilities established in Barnes v Addy, the other one being knowing receipt. To be liable for dishonest assistance, there must be a breach of trust or fiduciary duty by someone other than the defendant, the defendant must have helped that person in the breach, and the defendant must have a dishonest state of mind. The liability itself is well established, but the mental element of dishonesty is subject to considerable controversy which sprang from the House of Lords case Twinsectra Ltd v Yardley.
Twinsectra Ltd v Yardley[2002] UKHL 12 is a leading case in English trusts law. It provides authoritative rulings in the areas of Quistclose trusts and dishonest assistance.
A trustee de son tort is a person who may be regarded as owing fiduciary duties by a course of conduct that amounts to a wrong, or a tort. Accordingly, a trustee de son tort is not a person who is formally appointed as a trustee, but one who assumes such a role, and then cannot be heard to argue that he did not owe fiduciary duties.
Trustor AB v Smallbone [2001] EWHC 703 (Ch) is a UK company law case concerning piercing the corporate veil.
Knowing receipt is an English trusts law doctrine for imposing liability on a person who has received property that belongs to a trust, or which was held by a fiduciary, having known that the property was given to them in breach of trust. To be liable for knowing receipt, the claimant must show, first, a disposal of his trust assets in breach of fiduciary duty; second, the beneficial receipt by the defendant of assets which are traceable as representing the assets of the claimant; and third, knowledge on the part of the defendant that the assets he received are traceable to a breach of fiduciary duty.
Alec Lobb (Garages) Ltd. v. Total Oil (GB) Ltd.[1984] EWCA Civ 2 is an English contract law case relating to undue influence.
Target Holdings Ltd v Redferns[1995] UKHL 10 is an English trusts law case, concerning the test for causation and the extent of compensation for breaches of trust.
Westdeutsche Landesbank Girozentrale v Islington LBC[1996] UKHL 12, [1996] AC 669 is a leading English trusts law case concerning the circumstances under which a resulting trust arises. It held that such a trust must be intended, or must be able to be presumed to have been intended. In the view of the majority of the House of Lords, presumed intention to reflect what is conscionable underlies all resulting and constructive trusts.
Re Montagu's Settlement Trusts [1987] Ch 264 is an English trusts law case, concerning breach of trust and knowing receipt of trust property.
Baden v Société Générale pour Favoriser le Developpement du Commerce et de l'Industrie en France [1983] BCLC 325 is an English trusts law case, concerning breach of trust and knowing receipt of trust property. It was most famous for giving rise to the "Baden scale" or the "Baden knowledge scale" following on from the judgment of Peter Gibson J as to the five different types of relevant knowledge in knowing assistance cases. The use of the Baden scale has since fallen out of judicial favour in the United Kingdom.
Dubai Aluminium Co Ltd v Salaam [2002] UKHL 48 is an English vicarious liability case, concerning also breach of trust and dishonest assistance.
Royal Brunei Airlines Sdn Bhd v Tan[1995] UKPC 4 is an English trusts law case, concerning breach of trust and liability for dishonest assistance.
Belmont Finance Corp Ltd v Williams Furniture Ltd [1980] 1 All ER 393 is an English trusts law case, concerning breach of trust and dishonest assistance.
Undue influence in English law is a field of contract law and property law whereby a transaction may be set aside if it was procured by the influence exerted by one person on another, such that the transaction cannot "fairly be treated the expression of [that person's] free will".
Farah Constructions v Say-Dee Pty Ltd, also known as Farah, is a decision of the High Court of Australia. The case was influential in developing Australian legal doctrines relating to equity, property, unjust enrichment, and constructive trusts, as well as the doctrine of precedent as it applies in Australia.
Byers v Saudi National Bank[2022] EWCA Civ 43 is a decision of the English Court of Appeal in the long running litigation between the liquidators of SAAD Investments Company Limited and various parties relating to the alleged defrauding of the insolvent company by one of its principals.
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